Rental Yield

Rental yield tells you how hard a property is working for you as an income investment. The gross version is simple: take annual rent, divide by property value, multiply by 100. A $300,000 property renting for $2,000 a month ($24,000 a year) has an 8% gross yield. Net yield is more realistic—it subtracts expenses like taxes, insurance, maintenance, vacancies, and management fees before doing the math.

The gap between gross and net is bigger than most people expect. Operating expenses typically eat 35-50% of gross rent. That 8% gross yield property might net you just 4-5% after all the real-world costs—still solid compared to many alternatives, but a very different number than the headline.

Investors often use the "1% rule" as a quick filter: a property should rent for at least 1% of its purchase price per month. A $200,000 property should bring in $2,000+ monthly. If it passes that test, it's more likely to generate positive cash flow. In expensive cities like San Francisco or New York, very few properties hit that mark.

If you're using a mortgage (and most investors are), cash-on-cash return matters more than yield alone. Buy a $300,000 property with $60,000 down and earn $6,000 a year in net income, and your cash-on-cash return is 10% ($6,000 / $60,000)—much better than the 2% net yield calculated on the total property value. Leverage boosts your returns, though it also magnifies your risk.

Yield is just one piece of the total return puzzle. Real estate investors also benefit from appreciation (the property gaining value), principal paydown (each mortgage payment builds equity), tax benefits (like depreciation deductions), and inflation hedging (rents tend to rise with prices). Looking only at yield means you're missing a big part of the picture.